Disney Speakers: Bob Iger - The Walt Disney Company

[Pages:36]Q4 FY15 Earnings Conference Call

Disney Speakers:

NOVEMBER 5, 2015

Bob Iger

Chairman and Chief Executive Officer

Tom Staggs

Chief Operating Officer

Christine McCarthy

Senior Executive Vice President and Chief Financial Officer

Moderated by,

Lowell Singer

Senior Vice President, Investor Relations

?Disney

Fiscal Full Year and Q4 FY15 Earnings Conference Call

PRESENTATION

November 5, 2015

Operator

Welcome to the Walt Disney fiscal full year and Q4 2015 earnings call. My name is Adrian, and I'll be your operator for today's call. (Operator Instructions) Please note this conference is being recorded.

I'll now turn the call over to Lowell Singer, Senior Vice President Investor Relations.

Lowell Singer ? Senior Vice President, Investor Relations, The Walt Disney Company

Good afternoon and welcome to The Walt Disney Company's fourth-quarter 2015 earnings call. Our press release was issued about 45 minutes ago and is available on our website at investors. Today's call is also being webcast, and an audio recording and transcript of the call will be available on our website.

Joining me for today's call are Bob Iger, Disney's Chairman and Chief Executive Officer; Tom Staggs, Chief Operating Officer; and Christine McCarthy, Senior Executive Vice President and Chief Financial Officer. Bob, Tom and Christine will each make some comments, and then, of course, we will be happy to take your questions.

So with that, let me turn this over to Bob and we can get started.

Bob Iger ? Chairman and Chief Executive Officer, The Walt Disney Company

Thanks, Lowell. And good afternoon everyone.

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We are very pleased with our results in Q4, with adjusted EPS of $1.20, up 35% over the prior year. This strong performance capped our fifth consecutive year of record results ? including historic revenue and net income, and adjusted EPS up 19% to an all-time high of $5.15.

These results reflect the collective talents and commitment of our employees and Cast Members around the world, and I'm both proud of their achievements and grateful for their contributions.

Our performance continues to demonstrate the incredible strength of our brands and franchises; the extraordinary quality and robust pipeline of our creative content; our commitment to constant evolution as we adapt to emerging consumer trends and technology; and our unique, proven ability to leverage creative assets across our entire company to drive significant, long-term value.

And Star Wars is an obvious example. We're still six weeks away from releasing the first new film in a decade, but you can already see the impact and value of that franchise in various businesses.

We have Star Wars products in numerous retail categories, especially toys and games. And the huge global response to the brief glimpse of new merchandise we revealed on Force Friday in September suggests the demand will only grow with the release of new movies. A new generation is connecting with Star Wars through Disney XD's animated Star Wars Rebels. And fans and gamers around the world are anxiously awaiting the November 17th release of the highly anticipated Star Wars Battlefront from EA -- praised as the ultimate Star Wars gaming experience. We're expanding the franchise in our Parks and Resorts, adding Star Wars-themed lands in Disneyland and Disney World. And we're also using digital platforms to familiarize global consumers with the franchise and to market the film in truly innovative ways. And, of course, we're very excited about the December 18th release of Star Wars: The Force Awakens. And if the reaction to the trailers and ticket presales are any indication, we're not the only

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ones. J.J. Abrams and his cast and crew have delivered a truly epic adventure, but, what's even more exciting to us, is that this movie is only the beginning of a new generation of phenomenal Star Wars storytelling. We'll have three new Star Wars films in theaters between now and the end of 2017, with even more to come.

One of our greatest strengths is our willingness to embrace change and adapt to new trends and technologies to create extraordinary experiences that are relevant to consumers. That's especially true in the media space.

From our perspective, there are three key elements that are essential for success in media today. First, you have to have a quality product, preferably high-quality branded product. Next, you need to create a fantastic user experience with an incredible interface and navigation -- you have to make the service easy-to-use and the content easy-to-find. And the third essential element is mobility. Consumers now dictate where they want to access media, and it is essential for legacy distributors to crack the mobile code. The demand for great content is stronger than ever, but consumers are demanding a better user experience and they're migrating to platforms and services that deliver it.

Because of our great brands and franchises, we are uniquely positioned to use new platforms to reach more people and to do so in more compelling ways. And we intend to use these platforms to augment distribution and connect with consumers more directly.

DisneyLife, our new direct-to-consumer service in the UK, is a perfect example. Launching later this month, DisneyLife will give users unprecedented access to the vast universe of Disney storytelling, including hundreds of movies and thousands of TV episodes as well as music, books and more. It delivers a great experience with an incredible degree of personalization, including the ability to watch and read in several different languages.

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November 5, 2015

The Disney-branded content is fantastic, the user-friendly interface is very interactive and intuitive, and it's designed to be mobile, with apps for IOS and Android. So, we are three for three. We are very proud of this product, it definitely speaks to where we are going as a company. And we see opportunities to grow the concept across other markets, and perhaps other brands, in the future.

We're proud of our results this year, and believe our continued strong performance validates our long-term strategy to drive growth and shareholder value. Tom will take you through some of those highlights, and then we'll turn it over to Christine to walk you through the details of our fourth quarter and talk about some trends going forward.

Tom?

Tom Staggs ? Chief Operating Officer, The Walt Disney Company

Thanks, Bob, and good afternoon everyone.

As the media landscape continues to evolve, our uniquely valuable collection of in-demand brands and content puts us in a great position to deliver extraordinary experiences across platforms in the ways that Bob just discussed. By doing so, we have the opportunity to increase our engagement and deepen our connection with consumers.

ESPN is a perfect example. The brand is stronger than ever, thanks to the largest array of sports properties in the industry and ESPN's well-earned reputation among sports fans for consistently over-delivering, especially when it comes to live sports. In Fiscal 2015, ESPN was the #1 fulltime cable network in all major demos, delivering more than half of the year's Top 50 cable telecasts. ESPN's first College Football Playoff actually delivered the three biggest audiences in cable history as well as an 83% ratings increase over the prior year's Bowl Championship Series.

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In addition to having the best portfolio of sports rights in the business, ESPN has been a multiplatform pioneer for years, leveraging technology to keep fans connected to the best in sports wherever they are. WatchESPN remains one of the most elegant and user-friendly mobile services in the market today, and ESPN continues to innovate, creating and enhancing a very robust suite of services that are embraced by sports fans across the country. In September alone, 94.4 million fans spent 10.3 billion minutes engaging with ESPN on digital platforms, setting a new record for unique visitors and engagement in the sports category.

The demand for sports programming, especially live sports, is incredibly strong. And, no matter how they choose to engage, sports fans continue to trust ESPN to provide the best overall experience and the marquee events that matter most.

Turning to our Studio, our strategic focus on high-quality, branded movies continues to drive value across our businesses. Since their respective acquisitions by Disney, Pixar movies have averaged roughly $660 million in global box office, and Marvel films have averaged $820 million. And that success continues. The global box office receipts for Pixar's Inside Out are over $845 million to date. And Marvel's Ant-Man has totaled $515 million worldwide so far, exceeding the global box office totals on the original films for both Thor and Captain America.

In addition to the Star Wars movies Bob mentioned, we have a spectacular slate of releases scheduled for 2016, representing our full array of fantastic brands, starting with the release of Pixar's The Good Dinosaur later this month. Disney Animation's Zootopia opens next March, followed by Disney's live-action adventure, The Jungle Book, in April. In May, we'll release Marvel's Captain America: Civil War. And later that month, Johnny Depp returns as the Mad Hatter in Alice Through the Looking Glass. Fans of Pixar's Finding Nemo will finally get their wish for a sequel when Finding Dory opens in June. We've successfully introduced some fantastic but lesser-known superheroes into the Marvel cinematic universe with last year's Guardians of the Galaxy and again with Ant-Man this year, and we're looking forward to doing the same with

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Doctor Strange next year. We also have another great movie from Disney Animation, Moana, which will be in theaters for families to enjoy about a year from now.

I've been at Disney a long time, and I can't remember a movie slate that comes close to this one. It truly reflects the strength of the unprecedented pipeline of extraordinary content being generated under our unparalleled portfolio of brands.

One of the things we're most looking forward to in 2016, of course, is the grand opening of Shanghai Disney Resort next spring. We are well down the road in the construction of this spectacular, world-class destination in the most populous city in the most populous country on earth. As Bob has said, we committed ourselves to making this resort authentically Disney and distinctly Chinese. We were just there last week, and it is extremely gratifying to see how well we are delivering on that promise. The park features some of the best in Disney storytelling and innovation we've ever achieved, and our collaboration with Chinese cultural experts, creative talent and artisans is apparent throughout. At this point in the construction, all the major structures and landmarks are in place, and you really get a sense of the phenomenal experience in store for our guests when they walk through the gates of this spectacular destination next spring. From the grand scale to the smallest detail, it's absolutely extraordinary, and it's something only The Walt Disney Company could create.

We've begun holding a number of job fairs in China to find the talent we need to deliver the world-class experience guests expect from Disney, and the response has been overwhelmingly positive. There is a palpable excitement in China about Shanghai Disney, along with a great deal of pride, all of which we share.

And now Christine will walk you through the details of our performance and then we'll take your questions. Christine?

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Christine McCarthy ? Senior Executive Vice President and Chief Financial Officer, The Walt Disney Company

Thanks, Tom and good afternoon everyone. Excluding items affecting comparability, fourth quarter earnings per share were $1.20, an increase of 35% over last year, and for the full year were a record $5.15. Fourth quarter and full year results benefitted from an additional week of operations in our fiscal calendar this year. Our fiscal 2015 earnings represent a record for the company even after excluding the estimated effect of the 53rd week. The financial results this quarter and for the full year demonstrate the effectiveness of our strategy of investing in highquality, branded content. I am going to spend a few minutes discussing our fourth quarter results in more detail and then I'll highlight some factors that will impact our results in fiscal 2016.

Studio Entertainment had another record year with almost $2 billion in operating income in fiscal 2015, 27% higher than last year. This is a business that only two years ago generated less than $700 million in operating income, so the growth demonstrates the power of the investments we've made and our ability to execute against our strategy. The success of the Studio has been broad-based due to an unrivaled portfolio of film properties and our unique ability to take this great content and monetize it across multiple windows and businesses. Studio operating income more than doubled in the fourth quarter compared to last year due to growth in television distribution and higher worldwide theatrical results. Theatrical results reflected the performance of Inside Out and Ant-Man in the fourth quarter compared to the performance of prior year releases, which included Guardians of the Galaxy and Maleficent. Studio operating income also benefited from lower impairments in the quarter compared to prior year.

At Media Networks, growth in operating income in the fourth quarter was driven by an increase at Cable while Broadcasting results were in line with the prior year quarter. Growth in Cable operating income was driven by ESPN and, to a lesser extent, worldwide Disney Channels and higher equity income from A&E. The increase at ESPN was driven by the benefit of the 53rd

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